TAN Chong Motor Holdings Bhd (TCM) slipped further into the red in the second quarter of its 2020 financial year, coming in below MIDF Research’s expectations.
TCM saw a net loss of RM79 mil for 2Q20, leading to a net loss of RM104 mil for the first half of 2020.
“The 1H20 losses exceeded our FY20 forecasted net loss of RM42 mil and is well below consensus’ FY20 forecasted net loss of RM19 mil.”
“Though we do expect a significant improvement in sales in 2H20, driven by the Penjana sales tax holiday, to tone down full year losses, the 1H20 performance was significantly weaker than expected,” said MIDF analyst Hafriz Hezry.
The analyst noted that the weaker second half was due to volumes declining 69% year-on-year (yoy) due to the movement control order (MCO).
“Losses at the auto division were widely expected, but the large impairment loss
taken for the financing division was a negative surprise,” said Hafriz.
The finance division dipped into a loss before interest, tax, depreciation, and amortisation (LBITDA) of RM17 mil for the quarter just ended.
Still, Hafriz noted that TCM should see a kicker in 2H20, in the form of the new N18 Almera, a B-segment sedan. The analyst pointed out that the costing for the new Almera is likely to be negotiated closer to current foreign exchange levels, which should improve the margins generated by the model.
However, the near term is likely to see a drag on earnings from the run-out of the current generation Almera.
The current generation Almera was launched in 2012, with Hafriz presuming that negotiations and kit pricing took place between 2011 to 2012, when the ringgit was at around RM3.20 to the US dollar.
“Given the significant depreciation of the ringgit now, which is about RM4.30 to the US dollar, the current generation Almera would have turned into a barely profitable model,” said Hafriz.
MIDF maintains a neutral call on TCM, with a lower target price of RM1 from a previous RM1.15.
At the end of the trading day, TCM’s shares were last done at a static RM1.02, with 40,200 shares traded. – Aug 26, 2020
